On August 16, 2022, President Joe Biden signed into law the $739 billion Inflation Reduction Act of 2022 (IRA). This new law is a budget reconciliation bill that projects to raise $739 billion in revenue from tax increases to cover $369 billion in increased climate spending, $64 billion in increased health care spending, and approximately $300 billion in deficit reduction.
The key new taxes included in the law are a 15 percent minimum tax on certain corporations, a one percent tax on stock repurchases, and an extension of the IRC Section 461(l) excess business loss limitation. The Act also includes an $80 billion increase in Internal Revenue Services (IRS) funding, including $45 billion for enforcement and audits. The law also includes new and enhanced energy credits for individuals and businesses.
The major tax provisions include:
INDIVIDUAL TAX PROVISIONS
Affordable Care Act – Premium Tax Credit (PTC)
American Rescue Plan Act (ARPA) beneficial rules extended to apply for 2023-2025 (Increased PTC credits and availability to families over 400% of the poverty line)
Excess Business Losses
Extended two more years, now expires for tax years ending before 1/1/2029
Approximately $80 billion in total, with $45 billion for enforcement and $25 billion for operations support. Treasury Department officials have said they do not plan to increase audits on small businesses or households making under $400,000 a year. However, we believe that they will be targeting S-Corps and smaller partnerships much more than they have in the past.
HIGHLIGHTED ENERGY TAX CREDITS AND DEDUCTIONS
Nonbusiness energy property credit (12/31/22)
- Credit increased from 10% to 30% of the amount paid by the taxpayer for qualified energy efficiency improvements (doors, windows, skylights, insulation, heat pumps, water heaters, furnaces, water boilers, etc.) Roofs are no longer qualified property.
- Repeals the $500-lifetime limit and now has a $1,200 annual limitation instead
Residential energy efficient property credit (12/31/22)
- Increases credit for qualified expenditures made by a taxpayer for residential energy efficient property (solar electric, solar water heating, fuel cell, small wind energy, geothermal heat pump, biomass fuel, and battery storage technology). The credit is extended through 2034.
New qualified plug-in electric drive motor vehicles credit (12/31/22)
- Credit amount – $3,750 for meeting the critical minerals requirement and $3,750 for meeting the battery component requirement. AGI limitations apply.
- Repeals manufacturer limitations so additional vehicles qualify. The vehicles that qualify must now be assembled in the US. Vehicles that now qualify changed effective with the signing of the bill. There is an exception for a contract entered into prior to 8/15/22 for a vehicle that no longer qualifies.
Credit for previously owned “clean” vehicles (12/31/22)
Possible credit amount – lesser of $4,000 or the amount equal to 30% of the sale price with respect to such vehicle. AGI limitations apply.
New §45W Qualified Commercial Credit Clean Vehicle Credit
Starting in 2023, the commercial vehicle credit is a great option for a business, especially for a business owned by a higher-income individual, as there are no income limits for this tax credit. The maximum credit amount is $7,500 for vehicles weighing less than 14,000 pounds, and $40,000 for all other vehicles. It qualifies as a business vehicle by being subject to depreciation.
Energy efficient commercial building deduction (section 179D) (12/31/22)
Now uses an applicable dollar value (ADV) multiplication formula to calculate a potentially higher deduction amount.
CORPORATE TAX PROVISIONS
New 15% Corporate Alternative (“Book”) Minimum Tax (12/31/22)
- Only about 150 companies expected to be impacted
- Applies if the average adjusted financial statement net income for the past three years exceeds $1 billion (aggregation rules apply)
- Effective for tax years beginning after 12/31/2022
New 1% excise tax on the repurchase of corporate stock (12/31/22)
- Impacts “covered” corporations whose stock traded on an established security market
- Applies to the fair market value of stock repurchased during the entire tax year
- Exceptions for tax-free reorganizations, repurchases of $1 million or less, ESOPs, RICs, REITs, dividends
MODIFICATION OF EXISTING Research CREDIT
For tax years beginning after December 31, 2022, the §41 research credit allowed against payroll tax liabilities for certain start-up businesses increases from $250,000 to $500,000.
While much of the above new law is not specifically tax related, there are pieces of this legislation that will affect you as taxpayers. We will stay on top of this legislation and make sure you are taking advantage of any benefits you are eligible for in the coming months. If you have any questions please call us at 215-723-4881 or contact us online.